Tuesday, March 11, 2014

WTI and Brent Crude Oil charts: bears flex their muscles

The daily bar chart pattern of WTI Crude oil broke out upwards from a ‘flag’ consolidation pattern to reach the 105 level on Mon. Mar 3 ‘14 – its highest level in 5 months. Volumes were strong – which usually validates an upward break out.

But the break out turned out to be a ‘false’ one. Why? There is a technical reason and a fundamental reason. All three daily technical indicators touched lower tops inside their respective overbought zones while oil price touched a 5 months high. That warned of a possible correction.

Fundamentally, equity prices dropped and commodity prices surged globally due to Russia’s ‘occupation’ of Crimea. When fears of a war subsided, bears came to the fore. Volumes have been strong on down days.

Technical indicators have corrected from overbought zones, and are beginning to turn bearish. MACD is falling below its signal line in positive territory. RSI is seeking support from its 50% level. Slow stochastic has fallen below its 50% level. Oil’s price may correct some more.

The 50 day EMA has crossed above the 200 day EMA – the ‘golden cross’ technically signalling a return to bull territory. On longer-term weekly chart (not shown), oil is trading above all three weekly EMAs. The current dip is providing a buying opportunity.

Brent Crude chart

The daily bar chart pattern of Brent Crude oil continues to trade sideways, oscillating about its 200 day EMA. The following suggestion was made in the previous update: “The way to make money in such a situation is to do shorter-term trading (in the range between 104 and 112).”

Note that oil’s price spiked up to 112 on Mon. Mar 3 ‘14 on fears of a war in Ukraine. Bears took the opportunity to sell. All three EMAs have converged together and oil’s price is trading below them. There could be a quick drop towards 104.

Daily technical indicators are looking bearish. MACD is below its falling signal line and has entered negative territory. RSI is below its 50% level. Slow stochastic is trying to emerge from its oversold zone.

On longer-term weekly chart (not shown), oil’s price may move down to test support from its 200 week EMA.